The City's one-size-fits-all regulator assumes its new powers in December. But it may have structura

It has been a long time since the money bolted from Barings and BCCI, but the stable door will finally slam closed at midnight on 30 November, which is when the Financial Services Authority (FSA) assumes all-embracing powers for everything even vaguely connected with investment.

After that date, from its office block in London's Canary Wharf, the FSA will be responsible for the whole financial system, from banks and life assurance salesmen to friendly societies and hedge funds - and not only firms that deal on exchanges, but the exchanges themselves. No country on earth will have a regulator with such powers over as large a sector as the FSA chairman Sir Howard Davies.

It may be an irony that one-stop financial regulation arrives just when the concept of one-stop financial services provision - bancassurance - has gone out of fashion. But while it takes a horse to bolt before parliament acts, it takes several years to close the door. The 1979 Banking Act was the response to the 1973 secondary banking crisis; the 1982 Lloyds Act followed the scandals in the insurance market during the previous decade; the 1986 Financial Services Act resulted from the collapse of a barely heard-of (before or since) investment group called Norton Warburg in 1980; and the 1987 Banking Act stemmed from the rescue of Johnson Matthey three years earlier. After the collapse of Barings, BCCI and (though the incoming government in 1997 was reluctant to mention it) the Robert Maxwell empire, it was clearly time to legislate again. Hence the 1998 Bank of England Act that took away supervision of the banking system from the Bank of England, and the 2000 Financial Services and Markets Act, which now consolidates Davies's position of power.

The FSA has done the Bank's job of supervising banks since 1 June 1998. That date was known as N1, with N standing for New Regulatory Organisation, the FSA's original working title. From 1 December - N2 - it will be able to prosecute for money laundering and, for the first time, will assume responsibility for building societies, friendly societies, insurance companies and Lloyds of London. Lawyers and accountants who give investment advice will fall under its regime. The self-regulating organisations established by the 1986 act - the Personal Investment Authority (PIA), the Securities and Futures Authority and the Investment Management Regulatory Organisation - will formally transfer their powers to the FSA. Davies's organisation will gain powers to fine and prosecute investment companies and individuals - a sanction not available to the previous umbrella regulatory body, the Securities and Investments Board (SIB). And having already assumed the Bank of England's duties in monitoring banks and the Stock Exchange's job of checking that companies are fit to be floated and quoted, from December the FSA will also be the body that acts on insider-dealing cases.

If that is not enough, the FSA also assumes responsibility for educating the public about their finances, checking that people are not ripped off, maintaining confidence in the financial system and reducing financial crime. In December, the number of firms that the FSA monitors will jump from 8,500 to 10,000.

So there's not much it doesn't do. The complaint from some quarters of the City is that it doesn't do it very well - or, worse, that it does it too well. Almost any quarter will argue that by appointing one financial regulator to cover the whole financial area, firms are having to subscribe to rules that were intended for one of the other quarters.

One rulebook cannot cover such a wide range of businesses, claim firms as diverse as independent financial advisers and investment trust managers. One of the principles of good regulation that the FSA has set for itself is not to impose burdens or restrictions disproportionate to its aims, but that cuts little ice with the companies and trade bodies that had to sit through more than a year of parliamentary debate, 200 pages of legislation with more than 1,500 amendments, plus more than 150 pieces of secondary legislation after the bill became an act. The FSA is proud that it has consulted throughout - but that meant the industry has been inundated with reams of consultative papers that had to be read to see if they were relevant, but which always required responses at short notice.

So, a difficult birth. But if it makes the City a cleaner and safer place, then surely all is justified? After all, perhaps those complaining are the very people with something to worry about.

The City has seen something of the FSA's style. If December sees the official first night of this new act, it has been doing previews since Davies joined in 1997. Banking and share listing are already formally part of its repertoire and, while the alphabet soup of old self-regulatory organisations still exists until the end of November, the FSA has increasingly made their announcements under its name as if they had already gone.

It was thus the FSA that handled the potential disruption of financial markets after the September terrorist attacks on America. This was probably as big a test as any regulator has had to face since the secondary banking crisis of the 1970s, and the FSA appears to have acted decisively. It joined with the Bank of England to tell investors not to panic at falling share prices, relaxed the liquidity rules that were forcing life assurance companies to sell shares (so making prices fall further) and checked whether the terrorists had insider-dealt by anticipating that fall. It also threatened short-sellers who exacerbated the fall, told investment firms to check if the terrorists were clients, warned firms against money laundering and told quoted companies not to delay profit warnings.

Sadly, such macro actions go unthanked while the micro attracts criticism. A single regulator may stop the rogues escaping between the gaps, but it requires codification of matters which firms think should be left to common sense. Examples of overregulation - real or imagined - abound, such as investment managers who no longer deal for investment clubs (the infantry platoons of people's capitalism) because they would have to vet every member.

Investment firms point out that, having levelled the playing field, the regulator is now moving the goalposts. Because most insider dealing prosecutions have failed to produce convictions, for instance, the crime will be reclassified as a civil offence from December with the FSA able to use a lower standard of proof and mete out its own punishments, including naming and shaming.

Indeed, the FSA has become a solution looking for a problem. Financial services regulation started because Norton Warburg clients' money disappeared. Having successfully stopped such practices, the watchdog has redefined its remit to chase firms which invest the money but invest it badly. Rather than thank advisers for putting people into pensions that perform soundly, therefore, the FSA is making the industry pay well over £10bn for putting people into the wrong sort of pensions - inviting complaints from policyholders who do not even have a complaint. History is now being revised to question the sales of endowment policies that were acceptable practice when sold. There is a feeling that, having made the City crime-free, the FSA must invent new crimes to justify its existence.

Be that as it may. Perhaps the FSA's greatest flaw is structural. When the SIB sat above the mini-regulators, they could make a mistake and the umbrella watchdog could call for changes, hold an inquiry, make heads roll, even close the mini-regulator - but the system survived for another day. Thus Imro was blamed over Maxwell and its personnel changed, or Lautro was blamed for rogue advisers and rolled into the PIA, but SIB went on. Davies has no one to pass the buck to. The FSA's mandate says it must have regard to the principles of good corporate governance, but it has broken the prime governance rule by making him both chairman and, effectively, chief executive. When regulation goes wrong - as sod's law says it will - the FSA cannot even ditch its top executive without losing its chairman too. This eventuality may already have been set in train. Even after the House of Lords judges ruled that Equitable Life faced a £2.5bn annuities liability, the FSA allowed it to keep selling in the hope of finding a buyer for the company. By the time it had failed, many more policyholders had been sucked into this black hole.

Is the FSA to blame? We can wait for the official inquiry, but with only a single watchdog nowadays, the official inquiry is being conducted by the FSA. If it finds itself innocent, the regulator will be accused of whitewash; if it finds itself guilty, it undermines its own authority. At that point, the legislators start drafting yet new rules for closing stable doors.